Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as HealthEquity Inc (NASDAQ:HQY) with a market capitalization of $3.11B, rarely draw their attention from analysts and investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Mid-caps are found to be more volatile than the large-caps but safer than small-caps, largely due to their weaker balance sheet. I recommend you look at the following hurdles to assess HQY’s financial health. Check out our latest analysis for HealthEquity
Can HQY service its debt comfortably?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. For HQY, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Whether it’s an issue of access to debt or management choosing not to borrow, investors risk associated with debt issues is virtually non-existent with HQY.
Can HQY pay its short-term liabilities?
Since HealthEquity doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues. Solvency is word for the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. Our analysis shows that HQY is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Are you a shareholder? HQY has no debt as well as ample cash to cover its near-term liabilities such as salary and supplier payments. While it’s safe operations might reduce risk for the company and investors, some degree of debt could also boost earnings growth and operational efficiency. Since HQY’s capital structure may change over time, You should continue exploring market expectations for HQY’s future growth on our free analysis platform.
Are you a potential investor? While understanding the serviceability of debt is important when evaluating which companies are viable investments, it shouldn’t be the deciding factor. After all, debt financing is an important source of funding for companies seeking to grow through new projects and investments. HQY’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.